NON-TELECOM UTILITIES: Pipe Dreamers

That the rules of the game of Indian telecom sector have
changed is passe. What’s new is the announcements made during the last couple
of months by the Indian Railways, Power Grid Corp of India (PGCIL), Gas
Authority of India (GAIL) and Indian Oil (IOC). And despite the fact that these
non-telecom utilities are from different fields of operation, they have one
common objective–to use their existing infrastructure across the country. They
also aim to generate additional revenue from the new telecom game of networking
the bandwidth-starved nation.

While the Internet Service Policy 1998 and the National
Telecom Policy 1999 allow these companies to create electronic and photonic
transport infrastructure, what has made the proposition so lucrative for these
public sector utilities is that they have one great asset–right of way (ROW).
In fact, experts believe that this is where the incentive for them to get into
the business of telecom transport lies. Unlike the radio systems, especially the
satellite-based ones, any cable system is feasible only if those willing to get
into this business have a well-defined ROW through which the optical fiber cable
(OFC) can be laid.

Not that those without existing ROW cannot succeed in this
game, but then the alternative cost may sometimes be too high. Also, getting
fresh ROW for laying cables involves lot of procedures and clearance from
various government agencies, which may lead to time and cost over-runs in these
projects. Take the case of these four utilities. Railways leads the pack with
its clear and uninterrupted ROW over a 62,800 route-km. While, PGCIL has a clean
and sturdy transmission infrastructure of a 40,000 circuit-km and IOC is talking
about leasing out bandwidth capacity along its huge 5,000-km pipeline network
spread across the country. GAIL has plans of setting up a north-west-south
broadbrand network over its existing and planned ROW spread over 9,500 km.

What’s more, PGCIL, and to a certain extent Railways, also
have structures like transmission towers, pylons and posts ready along their
ROW. They also have OFCs laid in bits and pieces along their network of
transmission lines, rail track and pipeline. This also means that unlike the
several private sector players, these utilities already have the ROW cost sunk.
To be able to utilize it for laying OFC not only means improving their own
telecom connectivity, it also provides them ample opportunity of additional
revenue with lower investment. According to experts, the cost of the OFC would
only be about 25% of the total investment while the major chunk of cost is
towards ROW and laying the cable. Not to miss the fact that these companies will
continue to expand their ROW for their core utilities and utilize it to further
spread its OFC network.

The business model

While the four of them have been optimistic about their new
venture, they have been trying to work out the best feasible option to suit
their business needs. They have also been scouting for technical partners and
consultants. According to experts, however, such utilities can in a broader
perspective have three options before them. First, they can either sell or lease
their ROW to other players. Second, they can lease capacity by first creating
it. These may be dark cables or they may choose to light it up before leasing or
selling it. Third, these utilities can themselves become service providers.

Utilities, particularly the electricity companies, can also
sell or lease their ROW as well as their towers, posts and other infrastructure.
This would make it much easier, cost-effective and fast for the service provider
to install OFC. These companies also have the option of laying the cables
themselves. According to TH Chowdary, chairman, Centre for Telecom Management
Studies, these utilities can also form joint ventures (JVs) with companies
engaged in telecom transport and service business by placing value on ROW and
use of infrastructure. This model would also mean that their capital
participation gets frozen forever. Alternatively, they can form a JV where,
besides their capitalized ROW and other assets, they can also invest money to
create capacity, which can be priced to realize revenue.

Another model, or the third option as mentioned above, is to
create capacity and get into the service business directly. The IOC board of
directors had rejected the option of becoming an ISP after much deliberation as
it was not its core business. It seems that the Railways and PGCIL have more
ambitious plans (see box). And GAIL seems to have adopted the policy of creating
the capacity and leasing it out to both the operators and the end-users.

According to Mahesh Uppal, director, Telecom and Computer
Information Systems, the simplest thing for these companies to do is to choose
the first option: sell or lease their ROW to other players. ‘‘However, in
case they decide to create the capacity or get into services themselves, their
success would depend on their understanding of the technology and the service
industry,’’ he adds. Uppal also feels that apart from deep pockets, these
companies would also need thorough understanding of the policies and regulations
governing the sector to sail through the rigors of the telecom business.

Shirish Kanetkar, regional manager, Cisco Systems India,
agrees, ‘‘These utilities will need to understand that there is a big
difference between a pure infrastructure provider, a pure service provider and
those who own infrastructure and provide services. And the rule of the game is
different for each of them.’’ He adds, ‘‘The best option for these
players is to join hands with those who specialize in this game.’’ According
to him, these companies, especially the Railways have the best ROW in terms of
reach and penetration. ‘‘One good option for these utilities would be to
form a consortium and bring in a world-class technical partner to jointly
implement their dream,’’ he suggests. Not a bad idea if we consider the kind
of network these four can create together.

Perils of delay

While experts feel that it is too early to make a value
judgement on the plans of any of these four utilities, they share one fear–will
these public utilities be able to do away with their time-consuming processes
and capitalize on the ROW advantage?

Take a look at their competition. With the opening up of the
domestic long distance (DLD) telephony, the telecom ministry has given the the
final go ahead to push the industry’s plan to create new networks in the
country. Today, these networks are being rolled out by almost every category of
players–from the cable operators to ISPs to fixed service providers to those
looking ahead to become DLD operators. Also, most of the players are laying
fiber-optic cables as it is considered to be a one-time investment. This is
aimed at creating capacity that can be subsequently increased using technologies
like dense wave division multiplexing. And companies that provide this include
Reliance, BPL, Hinduja, SitiCable, Spectranet, RPG Netcom, Bharti, Caltiger,
Dishnet and HFCL. MTNL and VSNL are also working on plans to have their share of
the cake.

According to experts, while these private players may be
spending fortunes on securing the ROW, they have the requisite technology and
experience to fight for their share of the new network market. Expressing
apprehensions about their ability to implement projects at the speed that is
required, Chowdary remarked that the government departments and PSUs have no
value for time. ‘‘There is hardly any project that does not have time and
money over-runs,’’ he says. The reason, according to him, is the various
bureaucratic controls exercised by the administrative ministries, which despite
being totally unaccountable do not desist from back-seat driving. ‘‘For
them, process is more important than the purpose,’’ he quips.

According to him, though from the user point of view the
existence of competing transmission infrastructures is good, how these
enterprises propose to make money is a big question. ‘‘If they form a
subsidiary company, and put a dynamic business-savvy young executive as CEO with
vision, then they can hope to make a success of their intention. If the projects
are to be scrutinized, apprised and sanctioned by the administrative ministry
and the ministry of finance, they can rest assured that they would be left
behind by their private sector competitors,’’ he says categorically.

Only the early bird gets the worm, as the saying goes.

SHUBHENDU PARTH

in New Delhi